Income Tripler

Investing in Crude Oil: The Best Way to Play Oil’s Imminent Rebound

by Louis Basenese, Advisory Panelist
Senior Analyst, The Oxford Club

Billionaire investor George Soros and I don’t normally see eye to eye. He supports drug decriminalization, assisted suicide, America bashing… and a host of other off-the-reserve liberal causes.

I don’t. I’m an old-school Reagan conservative. (Full disclosure - I’m so old school, I named my first born after the late President.)

But here’s the thing. When it comes to investing, great political divides matter little. Because it’s not about getting our guy elected or unashamedly pushing a partisan agenda.

Instead, business - and by extension, investing in businesses - is only about increasing profits, as Milton Friedman put it. And based on the latest SEC filing for Soros’ hedge fund, we both agree on the best way for investing in crude oil’s imminent rebound…

Interested in Making Money In Stocks? Bookmark This Website…

If you’re interested in making money in stocks, regardless of your political leanings, you should bookmark the following website - and visit it daily. It’s a link to the most recent SEC filings.

• The first thing you should scan for are Form 4 filings. For a refresher on why, consult my friend Alex Green’s recent column on tracking insider trading.
• The next best thing to insiders backing up the truck is institutions doing so. And that’s because numerous studies confirm heavy institutional buying almost always leads to excess returns in future months.
• In other words, follow the “smart money” and you’ll often profit, too. And thankfully, we can easily monitor institutional purchases (and sales) via Form 13-F filings.

You see, the SEC requires all money managers with over $100 million in assets to disclose their U.S.-traded stocks, options and convertible bonds each quarter. And yesterday, Soros’ hedge fund firm, Soros Fund Management LLC, made its holdings public.

Turns out he increased his stake in one company by roughly 16 million shares, or 74%. And since April, he’s more than tripled his stake in this company to 36.8 million shares, up from 11.4 million.

Petrobras - The Best Play for Investing in Crude Oil

The object of Soros buying is none other than Brazil’s state-controlled oil company, Petrobras (NYSE: PBR). It’s a wise investment in my opinion. In fact, I recommended it to Oxford Club members last month at our Chapter Meeting in Managua, Nicaragua.

Here are five reasons why -

1. New discoveries. Worldwide oil demand might be off. But it’s temporary. And even if demand miraculously plateaus (don’t count on it with gas below $2 per gallon), the world would still “need to replace one Saudi Arabia per three years,” according to Petrobras’ CEO. No other company is making bigger discoveries than Petrobras. In fact, the company’s recent finds could triple its reserves. And as we all know, the country with the oil is always in control!

 

2. Long-term focus. With crude below $40 per barrel, most oil companies are cutting back on exploration and development. Not Petrobras. They plan to spend $174 billion by 2013, which ensures they’ll have plenty of products to sell when oil prices climb higher.

 

3. Low cost. Management estimates it can be profitable on new projects, even if crude oil stays around $45 per barrel. Few - if any - other major oil producers can claim such a low hurdle rate. Basic economic principles govern here - the low cost provider of a commodity enjoys the most profits when prices rise. And share prices often go along for the ride, too.

 

4. Deep-water expertise. All the easy-to-find crude oil is gone. But Petrobras is an expert in deep-water exploration. That’s a competitive advantage no other oil company can touch. And it should continue to help Petrobras add reserves at much lower costs than its peers.

 

5. Valuation. Emerging markets took it on the chin - twice as hard as the United States - despite stronger underlying fundamentals. It’s pointless to argue whether or not it was deserved. What matters is many high-quality stocks got caught up in the downdraft and now trade at mouthwatering levels. Petrobras is no exception, trading for less than 10 times earnings.

Add it all up, and this is one time I’m willing to admit I actually agree with George Soros. But forget about me. His sizeable investment and track record - last year his Quantum Endowment Fund returned 8%, compared to an 18% loss for the average hedge fund - are reasons enough to consider adding Petrobras to your portfolio.

Good investing,

Lou Basenese

Today’s Investment U Crib Sheet

As part of our daily web updates at Investment U, we’ve been providing our expert stock insight through our “Stock of the Day”. Here are some of this week’s hot stocks.

• Silver Wheaton Corp (NYSE: SLW)

 

• Buffalo Wild Wings (Nasdaq: BWLD)

 

• Cardinal Health, Inc. (NYSE:CAH)

In addition, if you haven’t already, take a look at our daily IU Blackboard. Here are the last three:

• Sun Still Shines on Trina Solar (TSL)

 

• Ethanol Is on Life Support… For Now

 

• Bet on the Chip Leaders… Intel (INTC)

Last week, Lou set off a firestorm with the gold bugs by declaring, “it’s time to short gold,” and explaining why gold was nearing its peak. It remains to be seen if his prediction will come true, but you can weigh in on the conversation in our comments section below the article.

Louis is just one of the experts we have speaking at the Investment U Conference this year.

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